Institutional Characteristics, Investment Sensitivity to Cash Flow and Tobin’s q: Evidence From the Mena Region

International Finance (Forthcoming)

Posted: 15 Jan 2020

See all articles by Abed Al-Nasser Abdallah

Abed Al-Nasser Abdallah

American University of Sharjah

Wissam Abdallah

Lebanese American University

Mohsen Saad

American University of Sharjah

Date Written: December 27, 2019

Abstract

We examine the sensitivity of corporate investment to stock-market valuations (measured by Tobin’s q) and internal funds (measured by cash flow) in a setting that captures the unique country institutional characteristics of the Middle East and North Africa (MENA) region. We report a higher sensitivity of investments to cash flow than Tobin’s q. However, both sensitivities are unaffected by the country institutional characteristics. By examining the sensitivity of investments to cash flow and Tobin’s q before and after the 2008 global financial crisis, we document that the investment-cash flow relation has weakened over time, while the investment-Tobin’s q relation has significantly strengthened. Finally, after dividing our country sample into resource-rich and resource-poor countries, the importance of cash flow over Tobin’s q in the determination of corporate investment levels is asserted and the role of financial markets is found to be restricted to resource-rich countries only.

Keywords: investment, institutional characteristics, cash flow, crisis, MENA

JEL Classification: G31, G32

Suggested Citation

Abdallah, Abed Al-Nasser and Abdallah, Wissam and Saad, Mohsen, Institutional Characteristics, Investment Sensitivity to Cash Flow and Tobin’s q: Evidence From the Mena Region (December 27, 2019). International Finance (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3510098

Abed Al-Nasser Abdallah (Contact Author)

American University of Sharjah ( email )

United Arab Emirates
+971 6 515 2594 (Phone)

Wissam Abdallah

Lebanese American University ( email )

P.O. Box 13-5053
Chouran Beirut 11022801
Beirut
Lebanon

HOME PAGE: http://sb.lau.edu.lb/faculty-research/faculty/fa/dr-wissam-abdallah-1.php

Mohsen Saad

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

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